Borrowing to invest, or gearing, can be a powerful means to build wealth. It allows you to increase your ability to build wealth by enabling a higher level of investment than would otherwise be possible. You can either positively gear or negatively gear.
The Benefits of Gearing
- Enables you to undertake a higher level of investment than may otherwise be possible
- In favourable market conditions, your earnings can be mutliplied.
- Generally, if the cost of borrowing exceeds the income generated from the investment, this excess is an allowable deduction.
- If you borrow to invest in shares you may obtain imputation credits which can be used to reduce the amount of tax you pay.
The Risks of Gearing
- An asset may not provide the expected return
- The market conditions under which you are borrowing may change. If you over-borrow, rising interest rates could restrict your ability to meet the loan payments.
- If you rely on the income from the investment/s, there may be periods where it produces little or no income, or even losses.
- Gearing can multiply your loss.
For more information on gearing strategies, Contact us to arrange a free initial interview.